Peter Saparoff

Peter Saparoff is a Member in the firm’s Boston office and co-chairs the firm’s Securities Litigation Practice. He is one of the nation’s leading securities litigators and he has represented clients in well over 100 cases, investigations, and proceedings throughout the country. He has successfully defended SEC investigations, class actions, derivative suits, stock exchange proceedings, and state securities investigations, and has handled numerous FINRA arbitrations, among other matters.

Recently, in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Limited (“Treasury Wine”), the Full Court of the Federal Court of Australia considered a primary judge’s class closure order which broke new ground in group action practice in Australia. The Treasury Wine case is part of a growing trend in Australian securities litigation toward class proceedings similar to the U.S. model, where investors do not have to be a named plaintiff to participate in a recovery. Rather, in this case, prior to the issuer and the representative plaintiff mediating the case, investors needed to “register” by submitting their transaction data. When the case settled after mediation, those who registered could recover from the settlement fund, but those who did not register were shut out of the settlement. Registering was not without risks, however, as the mediation could have failed. Some investors may have feared that by submitting their transaction data they were exposing themselves to the defendants and potential discovery in the event the case did not settle. However, the case did settle after mediation, and those who registered were rewarded.

In a June 13, 2017, ruling on a motion for partial summary judgment in the Ocwen Financial Corp. Securities Litigation (the “Ocwen Litigation”), the United States District Court for the Southern District of Florida determined Ocwen materially misrepresented in its securities filings and other public statements that its Executive Chairman would recuse himself from Ocwen’s transactions with companies in which the Executive Chairman also served as Chairman and thus had a direct financial interest. The Court concluded that although Ocwen and the Executive Chairman definitively stated the Executive Chairman would recuse himself according to company policy, there was in fact no company policy requiring recusal, nor had the Executive Chairman recused himself. The Court further concluded these statements by Ocwen and the Executive Chairman was materially false and misleading as a matter of law. Thus, while class plaintiffs still must prove the remaining elements of their Section 10(b)/Rule 10b-5 claim at trial, the Court found the class plaintiffs were entitled to judgment as a matter of law on the first element of their claim – that the statements concerning the Executive Chairman’s recusal were materially false and misleading.

On May 9, 2017, the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) affirmed in part and reversed in part an earlier decision from the U.S. Court of Federal Claims, which had held that aspects of the Government’s bailout of AIG constituted an illegal exaction. This case stems from two steps the Government took as part of its bailout of AIG. First, the Government issued a loan to AIG in exchange for preferred shares that were convertible to common shares representing an 80% equity interest in AIG. Second, AIG executed a 1:20 reverse stock split that enabled AIG to have enough unissued and authorized common shares to enable the Government to convert its preferred shares, without the need for AIG shareholder to vote in favor of authorizing enough common shares to allow for the Government’s conversion. This case proceeded as an “opt-in” class action, and many institutional investors opted in to the class.

Briefly stated, AIG’s largest shareholder, Starr International Co. (“Starr”) asserted claims based on the Government’s acquisition AIG equity (the “Equity Claims”) and claims based on the reverse stock split (the “Stock Split Claims”). With respect to the Equity Claims, Starr alleged that the Government’s acquisition of AIG equity was an illegal exaction because Section 13 of the Federal Reserve Act did not authorize the Government to take equity as consideration for its bailout loan. Additionally, through the Stock Split Claims, Starr maintained that the Government engineered a reverse stock split to enable it to convert the preferred shares it obtained as consideration for the bailout loan into common shares without a shareholder vote, depriving Starr of its ability to block the resulting dilution. In sum, the Federal Circuit (a) reversed the Court of Federal Claims decision that Starr had standing to pursue its Equity Claims, holding those claims were solely derivative; and (b) affirmed the Court of Federal Claims decision that denied relief for the Stock Split Claims, holding the court did not clearly err in finding that the primary purpose of the stock split was to prevent delisting by the NYSE, not to avoid a shareholder vote.

We have beenkeeping up with the In re LendingClub Securities Litigation class action, No. 3:16-cv-02627-WHA in the Northern District of California (“LendingClub”), in regard to Judge William Alsup’s unusual decision to require additional briefing from the class plaintiff before agreeing to the class plaintiff’s choice of class counsel. Now, as the LendingClub Plaintiffs oppose the Defendants’ motions to dismiss, Plaintiffs’ counsel is highlighting a recurring trend in motion to dismiss practice: defendants arguing facts at the motion to dismiss stage, particularly in complex cases.

Recent developments, however, have put the continued viability of Dutch Foundation actions into question. As we wrote here, in June of 2016, a Dutch court dismissed a foundation’s claims because, in the court’s view, the foundation failed to sufficiently safeguard the interests of its members from the foundation president’s potential conflict of interest. Then, the Court of Justice of the European Union (“CJEU”) issued a decision in Universal Music International Holding BV v Schilling that limited the jurisdiction of courts in EU countries, such as the Netherlands. The Universal Music decision addressed Regulation 44/2001, under which defendants must be sued in courts of the member state where they are headquartered, or, for tort-based claims, the place where the harmful event occurred. The CJEU concluded that pure financial damage to a bank account cannot by itself give rise to jurisdiction in the member state where the bank account sits. The CJEU thus held ““It is only where the other circumstances specific to the case also contribute to attributing jurisdiction to the courts for the place where a purely financial damage occurred, that such damage could, justifiably, entitle the applicant to bring the proceedings before the courts for that place” (par. 39).

More recently, the Dutch court has applied the Universal Music case to limit the ability of a foundation to bring suit against BP p.l.c. in the Dutch courts. After settlement negotiations apparently failed, a Foundation representing the interests of BP retail shareholders filed an action against BP in Amsterdam, relating to BP’s alleged misstatement concerning its safety protocols leading up to the Deepwater Horizon oil spill and its alleged misstatement concerning the spill flow-rate. The Foundation sought recovery for investors who had invested in BP shares through a Dutch financial intermediary or account.

This litigation relates to a 2000 SEC order granting Yahoo an exemption from registering as an investment company. The SEC granted the exemption because it found that Yahoo was “primarily engaged in a business other than that of investing, reinvesting, owning, holding, or trading securities . . . .” The exemption was predicated on two conditions: “1. Yahoo! [would] continue to allocate and utilize its accumulated cash and Cash Management Investments for bona fide business purpose; and 2. Yahoo! [would] refrain from investing or trading in securities for short-term speculative purposes.”

According to the plaintiff’s complaint, Yahoo’s business has changed substantially since the exemption was issued. The complaint alleges that “in 2000 approximately 57 percent of Yahoo’s income came from its operating business, while approximately 44 percent came from investments.” According to the plaintiff, however, by 2014 operations were responsible for only 1.2 percent of Yahoo’s income, and in 2015, “all of its net income was attributable to its investments.” Additionally, the complaint asserts that “[i]n 2013, Yahoo began considering spinning-off its Alibaba holdings” and registering the spin-off company itself as an investment company.

Due to these “fundamental changes to Yahoo’s business” the plaintiff, UFCW Local 1500 Pension Fund (“UFCW”), filed derivative and direct claims against Yahoo and its directors and officers for the alleged failure to register Yahoo as an investment company in violation of the ICA. UFCW argued that Yahoo had lost the protection of its registration exemption such that Yahoo was required to register as an investment company under the ICA. It further argued that because Yahoo had never so registered, “it had been operating illegally as an unregistered investment company.” Continue Reading Court Dismisses Claims Alleging that Yahoo Is Illegally Acting as an Unregistered Investment Company

Recent doubts have been raised as to the effectiveness of Dutch Foundations, which have become an important vehicle in foreign recoveries. While Dutch Foundations have negotiated settlements in some situations, some foreign commentators have begun to question their utility.

A Dutch Foundation, also known as a “stichting,” can be established in the Netherlands to represent the interests of victims. It is capable of resolving claims against a defendant in the form of a collective settlement or by instituting a legal proceeding. The Foundation has an independent Board of Directors that guides its activities.

An investor can join a Foundation without becoming a party plaintiff. A Foundation can begin a legal proceeding in its own name in a Dutch court on behalf of its members. Institutional investors in the U.S. and elsewhere are often solicited to join a Foundation because, in order to establish its “representation,” the Foundation must demonstrate that it has many members from various jurisdictions. The Foundation can either bring a collective action for a determination of liability or it can begin a collective settlement proceeding. Under said settlement proceeding, a settlement can bar everyone from suing the defendant except those who opt out.

With investors facing uncertainty as to the risks of becoming party plaintiffs in foreign securities cases, the Foundation has become, in some instances, an excellent practical alternative. Foundations have achieved some notable settlements in Shell Netherlands, EADS, and Converium, for example. However, some foreign commentators have raised issues about the Foundation’s effectiveness – especially as to non-Dutch defendants (even though we understand Converium was not a Dutch entity). The commentators raise such issues as jurisdiction, damages, and the statutes of limitations.

While these are understandable concerns, a non-Dutch defendant faced with numerous suits in various foreign jurisdictions might well look at the Foundation as a way to practically resolve all disputes. Because of the Morrison decision, discussions as to viability of litigation vehicles in foreign courts will certainly increase as investors continue to search for ways to recover losses, which recovery (pre-Morrison) could have been achieved in the United States.

Our recent and extensive experience with foreign securities litigation leads us to conclude that Foundations can be effective vehicles for recovery.

MINTZ LEVIN’S CLASS ACTION PRACTICE

Class actions are high-stakes, time-consuming, and costly, and they can present a substantial risk to the livelihood of your business. That’s why it’s critical to have defense counsel knowledgeable about and experienced in the specialized issues involved in these actions. Our national team has won landmark rulings and served as counsel in some of the largest multistate and stand-alone class actions. We combine substantive industry knowledge with procedural experience in class action defense, and have successfully defeated dozens of class certification motions.Read More